Financial Reporting

1007 Words4 Pages
Direct costs for the Ruger Clinic of Toledo, Ohio totaled $100,000 in 2007 and represents the total cost pool. The Ruger's uses direct cost allocation of expenses in the cost pool to three revenue-producing patient services. Drivers under consideration for the allocation of costs are patient service revenue (a direct dollar for dollar allocation) and hours of housekeeping services used (a volume-based activity for allocation). Drivers amounted to the following activity in dollars and volume, respectively: $5,000,000 in Total Revenues for 2007 5,000 hours of Housekeeping Services for 2007 Using these drivers, costs can then be allocated to the revenue-producing activities based on their volume used or dollars generated. Under the direct allocation method using 2007 Total Revenues, the allocation rate is calculated as follows: Total Cost Pool Expenses/Total Revenues $100,000 / $5,000,000 = $0.02 With costs allocated according to the revenue generated, $0.02 of cost is allocated to each dollar generated. The per unit costs are comparatively different when the volume-based housekeeping hours drivers is used for calculation. Under the allocation method using housekeeping hours used, the allocation rate is calculated as follows: Total Cost Pool / Hours of Housekeeping Services Used $100,000 / 5,000 hours = $20.00/hour The allocation rate calculates to $20.00 of cost allocated to each hour of housekeeping services used. A cost-volume-profit analysis analyzes the
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